IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR
(COMMERCIAL DIVISION)
PETITION NO. D-26-42-2009
In the matter of Drico (Water Specialist)
Sdn Bhd;
AND
In the matter of section 218(1)(i) of the
Companies Act 1965
AND
In the matter of the Rule 88 of the Rule
of High Court 1980
BETWEEN
… PETITIONER
DRICO LTD
AND
1.
DRICO (WATER SPECIALIST) SDN BHD
(Company No. 112278-M)
2.
ISMAIL BIN JOHARI
3.
KINOSHITA MASAO
4.
TAM KOK MENG
... RESPONDENTS
(Consolidated with)
1
IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR
(COMMERCIAL DIVISION)
SUIT NO. D6-28-687-2008
In the matter of Drico (Water Specialist)
Sdn Bhd;
AND
In the matter of section 218(1)(i) of the
Companies Act 1965
AND
In the matter of the Companies (Winding
Up) Rules 1972
BETWEEN
… PETITIONER
DRICO LTD
AND
1.
DRICO (WATER SPECIALIST) SDN BHD
(Company No. 112278-M)
2.
ISMAIL BIN JOHARI
3.
MOHAMED KHALZANI BIN MOHAMED SAFFIAN
4.
ZAWANI BTE ABDULLAH (DATIN) NEE WINIFRE
LEE SIEW FUN
... RESPONDENTS
GROUNDS OF JUDGMENT
2
1.
These grounds of judgment are in relation to suit D-26-42-2009
consolidated with D6-28-687-2008.
Background facts
2.
The Petitioner, Drico Ltd, is a company incorporated in Japan. The
Petitioner has been engaged in a wide variety of projects in Japan and
overseas, including water resource development and water supply projects,
and was founded in Japan by one Hiroshi Nakazato.
3.
In the 1980s, the petitioner decided to explore business opportunities
in Malaysia. Accordingly, on 29.09.1983, the petitioner entered into a joint
venture agreement (“JVA”) with two other Malaysians, Dato’ Mohd Saffian
bin H.A Majid and Abdul Hamid bin Haji Zainuddin. The parties to the JVA
agreed to incorporate a company to carry out in Malaysia the business of
supplying and/or installing plants and equipment for water treatment and
other related fields.
4.
Pursuant to the JVA”), the 1st Respondent, Drico (Water-Specialist)
Sdn Bhd (“DWS”) which bears the petitioner’s corporate name “Drico”, was
3
incorporated on 30.12.1983. DWS then began carrying out its water
treatment business in Malaysia, with the petitioner providing the necessary
expertise and technical know-how for carrying out the services.
5.
Prior to the alleged Transfer of Shares the shareholding of DWS was
as follows:
Shareholder
No. of Shares and
Percentage of Shareholding
Drico Ltd (the petitioner)
190,000 (76%)
Ismail bin Johari (the 2nd respondent)
40,000 (16%)
Mohamed Khalzani bin Mohamed Saffian
(hereinafter, “Mohamed Khalzani”)
10,000 (4%)
Zawini Bte Abdullah (Datin) Nee Winifred
Lee Siew Fun (hereinafter, “Datin Zawini”)
6.
10,001 (4%)
The directors of DWS were, and still remain, Ismail the 2nd
Respondent (who is also a shareholder) appointed on 1.05.1991, and
4
Kinoshita Masao (the 3rd respondent) who was appointed on 17.03.1999.
DWS has been allegedly put into voluntary liquidation but the petitioner
disputes this alleged voluntary winding up for the reasons set out in this
Petition.
The petitioner’s case
7.
The reason for the formation of the DWS was to carry out the
business of water-treatment and DWS was formed on the common basis
and understanding that the petitioner would provide the expertise and
manage the business of DWS.
8.
Pursuant to the common understanding of the role that the petitioner
would play in the operations of DWS, the petitioner was given the right to
appoint its nominees to the Board of DWS and it was agreed that the
Managing Director should be appointed from among the directors elected
by the petitioner.
9.
At the time of incorporation of DWS in 1983, the petitioner’s founder,
Hiroshi Nakazato, was the petitioner’s nominated director on the Board of
5
DWS. The petitioner appointed the 3rd respondent, Kinoshita, who was
then its employee and also a director of the petitioner, to the Board of
Directors of DWS on 17.03.1999. The 3rd respondent who was a long
serving employee of the petitioner, moved to Malaysia to oversee and to
manage the operations of DWS in the interest of the petitioner.
10.
In January 2008, the 3rd respondent retired from the employment of
the petitioner as he had reached the retirement age of 60. Notwithstanding
that the 3rd respondent is no longer an employee of the petitioner, he has
continued to remain on the board of DWS in Malaysia although he no
longer takes directions from the petitioner.
11.
Since 2007, it is alleged by the petitioner that the two directors of
DWS, Ismail and Kinoshita (the 2nd and 3rd respondents) have acted in a
manner that is oppressive and in total disregard of the interest and rights of
the petitioner and the 4th respondent has also been involved in such
matters.
The culmination of the conduct of the 2nd to 4th respondents
occurred when a members’ resolution was purportedly passed resolving
that DWS be voluntarily wound-up and that Tam Kok Meng (the 4th
respondent) be appointed as liquidator, although the Petitioner was not
6
informed of the Extraordinary General Meeting (“EGM”) purportedly
convened and had neither attended in person or appointed a proxy to vote.
12.
The petitioner seek the following relief :
(i)
An order for winding-up
(a)
(b)
that the 1st respondent DWS be wound up ;
that Mr Ooi Woon Chen, Liquidator License No
1891/93/10 J/PH, and Mr Ong Hock An, Liquidator
License No 2309/08/10 J/PH (“the Liquidators”), or any
such other approved Liquidator(s) as deemed fit by this
Court, be appointed jointly and severally as Liquidators
of DWS; and
(c)
that payment of the Liquidators’ agreed professional fees
up to RM8000 a month and actual service tax and
disbursements incurred be approved, and that the
Liquidators be allowed to draw from DWS the approved
payment of their professional fees and disbursements
monthly.
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(d)
that the Liquidators be at liberty to apply to Court for
further direction concerning the payment of their
professional fees and disbursements incurred, and the
discharge of their duties
(ii)
Declaratory Relief
(a)
A declaration that any alleged resolution resolving that
DWS be voluntary wound-up and that the 4th respondent
be appointed as liquidator, is void, invalid and of no
effect. Accordingly, all documents relating thereto
including but not limited to the Notice of Resolution
(Form 11), Form 72, is void, invalid and of no effect;
(b)
A declaration that the appointment of the 4th respondent
as liquidator is therefore void, invalid and of no effect;
(c)
Accordingly, a declaration that any act carried out
pursuant
to
the
alleged
resolution
or
alleged
appointment in prayer (e) and (f) above, is void, invalid
and of no effect;
8
(iii)
Damages
Damages, to be assessed, and that the 2nd, 3rd and 4th
respondents be liable and pay, jointly or severally, to the
petitioner such amount found due to the petitioner;
(iv)
Costs
Costs payable on solicitor-client indemnity basis by the 2nd, 3rd
and 4th respondents, on a joint and several basis.
(v)
Interests
Interests, payable by the 2nd, 3rd and 4th respondents jointly and
severally.
The law relating to section 181 of the Companies Act 1965
13.
I now turn to consider the provisions of section 181 of the Act which is
in the following terms :
9
181(1) Any member or holder of a debenture of a company or, in the case of a
declared company under Part IX, the Minister, may apply to the Court for an
order under this section on the ground (a) that the affairs of the company are being conducted or the powers of the
directors are being exercised in a manner oppressive to one or more of the
members or holders of debentures including himself or in disregard of his or their
interests as members, shareholders or holders of debentures of the company; or
(b) that some act of the company has been done or is threatened or that some
resolution of the members, holders of debentures or any class of them has been
passed or is proposed which unfairly discriminates against or is otherwise
prejudicial to one or more of the members or holders of debentures (including
himself).
(2) If on such application the Court is of the opinion that either of those grounds
is established the Court may, with the view to bringing to an end or remedying
the matters complained of, make such order as it thinks fit and without prejudice
to the generality of the foregoing the order may (a) direct or prohibit any act or cancel or vary any transaction or resolution;
(b) regulate the conduct of the affairs of the company in future;
(c) provide for the purchase of the shares or debentures of the company by other
members or holders of debentures of the company or by the company itself;
(d) in the case of a purchase of shares by the company provide for a reduction
accordingly of the company's capital; or (e) provide that the company be wound
up.
(3) Where an order that the company be wound up is made pursuant to
subsection (2)(e) the provisions of this Act relating to winding-up of a company
10
shall, with such adaptations as are necessary, apply as if the order had been
made upon a petition duly presented to the Court by the company.
(4) Where an order under this section makes any alteration in or addition to any
company's memorandum or articles, then, notwithstanding anything in any other
provision of this Act, but subject to the order, the company concerned shall not
have power without the leave of the Court to make any further alteration in or
addition to the memorandum or articles inconsistent with the order; but subject to
the foregoing provisions of this subsection the alterations or additions made by
the order shall be of the same effect as if duly made by resolution of the
company.
(5) An office copy of any order made under this section shall be lodged by the
applicant with the Registrar within fourteen days after the making of the order.
Penalty: One thousand ringgit.
14.
In Re Kong Thai Sawmill ; Kong Thai Sawmill (Miri) Sdn Bhd &
Ors v Lim Beng Sung [1978] 2 MLJ 227 (P.C.), Lord Wilberforce, when
delivering the advice of the Privy Council laid down certain guidelines as to
how the section is to be approached. This is what his Lordship said (at pp.
228-229 of the report):
(i)
This section can trace its descent from s. 210 of the United Kingdom
Companies Act 1948 which was introduced in that year in order to
strengthen the position of minority shareholders in limited companies. It
also resembles the rather wider s. 186 of the Australian Companies Act
11
1961. But s. 181 is in important respects different from both its
predecessors and is notably wider in scope than the United Kingdom
section.
In sub-section (1)(a) it adds disregard of the interests of
members, etc. to oppression as a ground for relief in this respect making
explicit what was already inherent in the section (see In re H.R. Harmer
Ltd. [1959] 1 WLR 62, at p. 75). It introduces a new ground in sub-section
(1)(b) and, most importantly, in sub-section 2 , which sets out the kinds of
relief which may be granted, it provides for "remedying the matters
complained of" and states as a specific type of relief that of winding-up of
the company.
(ii)
Section 210 is differently constructed. Under it, the Court is required to
find that the facts would justify the making of a winding-up order under the
'just and equitable' provision in the Act, but also that to wind-up the
company would unfairly prejudice the 'oppressed' minority. The Malaysian
section, on the other hand, requires (under sub-section 1(a)) a finding of
'oppression' or 'disregard', and then leaves to the Court a wide discretion
as to the relief which it may grant, including among the options that of
winding the company up. That option ranks equally with the others, so that
it is incorrect to say that the primary remedy is winding-up. That may have
been so before 1948 and even after the enactment of s. 210 , but is not
the case under s. 181.
12
(iii)
Their Lordships consider it important that Courts applying s. 181 should do
so according to its terms and its purpose and should not regard
themselves as necessarily bound by United Kingdom decisions, which are
based upon a different section, and in some cases restrictive. The same
applies, though with less force, to reliance upon Australian decisions upon
s. 186.
(iv)
There are three particular points of direct relevance in the present appeal.
First, it is claimed by the appellants that the section is not a substitute for a
minority shareholders' action and, specifically, that many if not most of the
matters complained of would properly form the subject of such an action.
Their Lordships agree with this in part. Relief cannot be sought under s.
181 merely because facts are established which would found a minority
shareholders' action: the section requires (relevantly) 'oppression' or
'disregard' to be shown, and these are not necessary elements in the
action referred to. But if a case of 'oppression' or 'disregard' is made out,
the section applies and it is no answer to say that relief might also have
been obtained in a minority shareholders' action. To the extent that the
appellants so contend their Lordships do not accept their argument.
(v)
2ndly, for the case to be brought within s. 181(1)(a) at all, the complaint
must identify and prove 'oppression' or 'disregard'. The mere fact that one
or more of those managing the company possess a majority of the voting
power and, in reliance upon that power, make policy or executive
13
decisions, with which the complainant does not agree, is not enough.
Those who take interests in companies limited by shares have to accept
majority rule. It is only when majority rule passes over into rule oppressive
of the minority, or in disregard of their interests, that the section can be
evoked. As was said in a decision upon the United Kingdom section there
must be a visible departure from the standards of fair dealing and a
violation of the conditions of fair play which a shareholder is entitled to
expect before a case of oppression can be made (Elder v. Elder & Watson
Ltd. [1952] SC 49: their Lordships would place the emphasis on 'visible'.
And similarly 'disregard' involves something more than a failure to take
account of the minority's interest: there must be awareness of that interest
and an evident decision to override it or brush it aside or to set at naught
the proper company procedure (per Lord Clyde in Thompson v. Drysdale
[1925] SC 311, at p. 315). Neither 'oppression' nor 'disregard' need be
shown by a use of the majority's voting power to vote down the minority:
either may be demonstrated by a course of conduct which in some
identifiable respect, or at an identifiable point in time, can be held to have
crossed the line.
(vi)
Thirdly, in a number of United Kingdom decisions it has been held that for
s. 210 to apply the complainant must show oppression continuing up to
the date of proceedings (e.g. In Re Jermyn Street Turkish Baths Ltd.
[1971] 1 WLR 1042); where there has been oppression in the past, the
14
section does not bite.
Their Lordships agree that the wording of the
section (and the same is true of s. 181(l) (a)) relates to a present state of
affairs: 'are being conducted', powers 'are being exercised' are
grammatically clear: the language may be contrasted with that of s. 181(l)
(b) which refers to an act of the company which has been done or
threatened.
But this argument must not be taken too far.
What is
attacked by sub-section (1)(a) is not particular acts but the manner in
which the affairs of the company are being conducted or the powers of the
directors exercised.
And these may be held to be 'oppressive' or 'in
disregard' even though a particular objectionable act may have been
remedied. A last minute correction by the majority may well leave open a
finding that, as shown by its conduct over a period, a firm tendency or
propensity still exists at the time of the proceedings to oppress the
minority or to disregard its interests so calling for a remedy under the
section. This point is well brought out in Re Bright Pine Mills Pty. Ltd.
[1969] VR 1002, at pp. 1011-2.
(vii)
Their Lordships have made these observations upon the Malaysian s.
181, not because they disagree with the statement of the law by the
Federal Court - which indeed recognised the wider scope of s. 181 as
compared with the corresponding provisions in England and in Australia.
They are concerned rather to emphasise the utility of the jurisdiction
15
conferred upon the Courts in Malaysia, and to deal with particular
arguments urged in this case with some of which they do not agree.
15.
The question whether there is oppression, disregard, unfair
discrimination or whether the act complained of is prejudicial is one that
must be determined according to the facts of each particular case (see Re
Senson Auto Supplies Sdn. Bhd. (1988) 1 MLJ 326).
16.
The scope of section 181 of the Act more recently was discussed in
Pan-Pacific Construction Holdings Sdn. Bhd. v. Ngiu-Kee Corporation
(M) Bhd. & Anor [2010] 6 CLJ 721, where the Federal Court held as
follows:
“Therefore, in order to succeed in its petition pursuant to s. 181 the petitioner
has to establish and 'must eminently be determined according to the facts' of
this case that the affairs of the company are being conducted or that the
powers of the directors are being exercised in an oppressive manner or in
disregard of its interests, or to its prejudice some unfairly discriminatory or
prejudicial act of the company has been done or threatened, or that some
resolutions of the members, debenture holders or any class of them has
been passed or is proposed to be passed.
16
In other words s. 181 permits judicial remedy on four categories of conduct,
namely, oppressive conduct, conduct in disregard of interests, unfairly
discriminatory conduct or prejudicial conduct.
It may also be noted that from the wordings of s. 181 its basic theme is
‘unfairness’. However, unfairness 'does not mean that the court can do
whatever the individual judge happens to think fair. The concept of fairness
must be applied judicially and the content which it is given by the courts must
be based upon rational principles. "The court ... has a very wide discretion,
but it does no sit under a palm tree"'. (See: O'Neil v. Philips [1999] 2 All ER
961).
In Re Saul D Harrison & Sons plc [1995] 1 BCLC it was explained (Hoffmann
LJ [as he then was]) that in 'deciding what is fair or unfair for the purposes of
s. 459, it is important to have in mind that fairness is being used in the
context of a commercial relationship. The articles of association are just
what their name implies: the contractual terms which govern the
relationships of the shareholders with the company and each other.
They determine the powers of the board and the company in general
meeting and everyone who becomes a member of a company is taken
to have agreed to them. Since keeping promises and honouring
agreements is probably the most important element of commercial fairness,
the starting point in any case under s. 459 will be to ask whether the conduct
17
of which the shareholder complains was in accordance with the articles of
association ... The answer to this question often turns on the fact that the
powers which the shareholders have entrusted to the board are fiduciary
powers, which must be exercised for the benefit of the company as a whole
... But the fact that the board are protected by the principle of majority rule
does not necessarily prevent their conduct from being unfair within the
meaning of s. 459'.
Thus, in Re Kong Thai Sawmill (Miri) Sdn Bhd; Kong Thai Sawmill (Miri) Sdn
Bhd & Ors v. Ling Beng Sung [1978] 1 LNS 170 the term 'disregard of
interests' is to be understood to mean 'unfair disregard' while 'oppression'
denotes an 'unfairly prejudicial conduct' which means a conduct 'departing
from standards of fair dealing and a violation of conditions of fair play'. But 'a
member of a company will not ordinarily be entitled to complain of unfairness
unless there has been some breach of the terms on which he agreed that the
affairs of the company should be conducted'. And 'trivial or technical
infringements of the articles were not intended to give rise to petitions under
s. 459'. (See: Re Saul D Harrison & Sons Plc (supra).”
17.
Applying the principles outlined above, I shall deal with the Petition as
follows :
18
Whether 2nd and 3rd respondents refused to cooperate in appointing
additional directors for petitioner in DWS
18.
The petitioner contended that both the 2nd and 3rd respondents
refused to allow the petitioner to appoint 2 more nominee directors.
19.
It was further contended by the petitioner that the 3rd respondent at
this point of time was still acting as petitioner’s nominee director and should
follow the instructions of petitioner.
20.
However, the 2nd and 3rd respondents argued that with the
appointment of the proposed (2) new directors, the petitioner would have 3
directors on the board of directors, one more that what the petitioner was
entitled to under article 5.1 of the JVA and this would in itself be a clear
breach by the petitioner.
21.
On the contrary, the petitioner submitted that the JVA has no legal
effect since the other contracting party to the JVA, Dato’ Mohd Soffian and
Abdul Hamid are no longer shareholders of DWS. With regrets, the Court
finds that there is no merit in the petitioner’s submission.
19
22.
I must stress at this point that even though the JVA is entered into
between Dato’ Mohd Soffian and the petitioner, Dato’ Mohd Soffian had
transferred his interests in the share to Mohd Ismail. Thus, by virtue of
clause 9.7 of the JVA, this JVA shall be binding upon each party thereto
and their respective successors and assignees.
23.
It is pertinent to note that with the appointment of the proposed 2 new
directors the petitioner would have 3 directors on the board of directors,
one more than what the petitioner was entitled to under Article 5.1 of the
JVA. According to this would be in itself be a breach of the JVA by the
petitioner.
24.
Thus, the refusal of the 2nd and 3rd Respondents to allow the
petitioner to appoint 2 more nominee directors for petitioner in DWS do not
amount to “oppression”.
The facts of the High Court case in Genisys
Integrated Engineers Pte Ltd & Anor v UEM Genisys Sdn Bhd & Anor
[2006] 8 CLJ 164 referred to by learned counsel for the petitioner can be
distinguished from the facts of this present case. In this present case, the
20
rights of the petitioner to appoint additional directors in DWS is to be read
in the light of the JVA Agreement.
Whether the 2nd and 3rd respondents had refused to cooperate in
allowing the DWS to be voluntary wound up
25.
On 6.2.2008, the 3rd respondent and the petitioner entered into an
agreement whereby the 3rd respondent would be paid 12 million yen upon
the petitioner “objectively realizing that the procedure for convening a
shareholders meeting completed”. The petitioner contended that the they
would not have to enter into the agreement had the 2nd and 3rd respondents
cooperate and give effect to their wishes to appoint 2 additional directors
and wind up DWS.
26.
In this regard, the court notes that on 15.1.2008, the 2nd and 3rd
respondents had already resolved a Board Meeting to put into place the
winding up of DWS.
Subsequently, on 26.1.2008, a shareholder’s
resolution was also passed for this same purpose. From the evidence
adduced, the court finds that the petitioner was not aware that DWS will be
wound-up prior to the signing of the Share Transfer Agreement. The court
21
cannot accept the 3rd respondent’s explanation that he was paid RM12
million yen to convene a shareholder’s meeting for the winding up of DWS.
In this regard, the court finds that the 3rd respondent’s conduct in accepting
RM12 million yen from the petitioner amounts to disregard to the interest of
the petitioner. The amount of RM12 million yen received by 3rd respondent
is unlawful thus this payment must be returned to the petitioner.
Whether the EGM and the appointment of liquidator on 30.8.2008 is
valid
27.
The respondents have alleged that 3rd respondent as proxy of the
petitioner attended the (EGM) of 30 August 2008 and voted in favour of the
resolution resolving that DWS be voluntarily wound-up and that Tam Kok
Meng (the 4th Respondent) be appointed as liquidator. The court note that
the 3rd respondent had signed the proxy form for that EGM of 30 August
2008 appointing himself as proxy on behalf of petitioner. The petitioner
submitted that 3rd respondent’s alleged appointment as proxy is wrong in
law. The petitioner did not attend the EGM or vote in favour of any
resolution resolving that DWS be wound up or that the 4th respondent be
22
appointed as liquidator, whether by itself or by proxy.
In support its
argument, the petitioner submitted as follows :
(i) The petitioner pointed out that section 149 of the Companies Act
1965 provides for the appointment of a proxy to attend and to vote
at meetings. Counsel for the petitioners referred to the English
Court of Appeal case of Re English, Scottish & Australian
Chartered Bank [1893] 3 Ch 385, Lindley L.J. held at page 409:
“Proxy…means some agent properly appointed.”
(ii) Pursuant to Article 73 of the Articles of Association of DWS, a proxy
is to be appointed in the following manner :
“The instrument appointing a proxy shall be in writing under the
hands of the appointer or of his attorney duly authorized in
writing or if such appointment is a corporation, under its common
seal or the hand of its attorney”.
(iii)
Further, note 2 on the proxy form states:
23
“if the appointer is a corporation, the proxy form must be under its
common seal or under the hand of some officer or attorney authorized on
its behalf”
28.
According to the case of Low Son Siang v Lee Kim Yong [1999] 1
CLJ 529, every member of a company who is entitled to attend and to vote
at any general meeting has the right to appoint a proxy to attend and vote
on his behalf. If the Articles do not set out the relevant form for the proxy,
even a written appointment will suffice.
29.
In this regard, the Court notes that the proxy form signed by 3rd
respondent, allegedly as representative of the petitioner, is clearly contrary
to Note 2 which requires the proxy from to be only under the appointer’s
common seal or the hand of its attorney. Further, although the petitioner
was the majority shareholder of DWS, based on the evidence adduced, the
petitioner was not aware at all that an EGM was being held on 30 August
2008 and that any resolution pertaining to winding-up and appointment of
liquidator would be passed.
30.
It is the petitioner’s case that although 3rd respondent may have
previously attended other meetings as proxy of the petitioner, each
24
separate meeting requires a fresh valid appointment of proxy in accordance
with the Companies Act 1965 and the Articles of Association.
31.
It cannot be said that by reason of these past meetings, 3rd
respondent is automatically a proxy of the petitioner for the purpose of the
particular EGM of 30 August 2008. In the Court of Appeal case of Puran
Singh v Kehar Singh [1939] MLJ 71 which was followed in Veetak
Enterprise Sdn Bhd v The Kuala Lumpur Finance Bhd [1985] 1 LNS 9,
it was held that there can be no estoppel against a statutory provision in an
Enactment which legislates on a matter of general interest.
32.
Similarly, in Pacific & Orient Insurance Co Sdn Bhd v Cheng Chor
Tong & Ors [2006] 8 CLJ 313, it was also held that no estoppels by
representation will be allowed to be raised if the effect is to negate the
operation of a statute.
The Argument by the 2nd, 3rd and 4th respondents that the 3rd
respondent Was Appointed As Proxy through the Memorandum dated
6 February 2008
25
33.
Learned counsel for the 2nd respondent contended that the
Memorandum of 6 February 2008 gives authority to 3rd respondent to carry
out the voluntary liquidation, as evidenced by the letters of 6 April 2009 and
17 April 2009.
This is a similar argument adopted by 2nd and 4th
respondents. In this regard, the court notes that the Memorandum of 6
February 2008 only requests 3rd respondent to convene a general
meeting and there is no authority given for 3rd respondent to attend or
to vote. Under cross examination, the 3rd respondent agreed that this
document was merely an agreement and did not appoint him as a proxy. In
any event, as shown above, the formal procedure for appointing a proxy or
corporate representative must be followed if 3rd respondent were rightfully
to exercise the petitioner’s voting rights.
34.
The court when interpreting the agreement on 6 February 2008 is
confined to its four corners. From a plain reading of the agreement, it is
clear that 3rd respondent was merely required to convene a meeting for the
winding up of DWS and not to attend and vote on its behalf.
35.
In the Court of Appeal decision of Thong Foo Ching & Ors v
Shigenori Ono [1998] 4 CLJ 674 (CA), Siti Norma Yaakob JCA (as she
26
then was) held as follows with regards to section 91 and 92 of the Evidence
Act 1950 at page 689:
“To begin with, s. 91 provides that the contents of a document must be
proved by the document itself and s. 92 of the same Act provides that
subject to six provisos, no evidence of any oral agreement shall be
admitted for the purpose of contradicting, varying, adding to or subtracting
from, its terms. The underlying reasoning for this well established principle
of law is expressed clearly by Mohamed Azmi, FJ in the case of Keng Huat
Film Co. Sdn. Bhd. V. Makhanlall (properties) Pte. Ltd. [1983] CLJ 186 to
be as follows:
For the construction of a written agreement the established doctrine is firstly
to exclude evidence of negotiations leading up to the contract on the ground
that it is only the final agreement which records a consensus and as such
evidence of negotiations is unhelpful; and secondly to exclude evidence of
the parties subjective intentions so that any individual purpose which either
of them hopes to achieve by the agreement and their own interpretation and
understanding of the agreement is not admissible…”
36.
It is a well-settled principle that the meaning of the contract has to be
sought for in the contract itself. The task of the court is to determine the
27
intention of the parties as expressed in the words used in the contract and
not the subjective intention.
37.
It is also a principle of law that an unexpressed intention has no
effect. In Western Power Co. Canada, Ltd v Corporation of the District
of Matsui AIR 1934 PC 254, the Privy Council observed the following at
page 254 :
“No doubt words can be supplied to give effect to the obvious or apparent
purpose of the contract. But this can only be if the language taken as a
whole
in connection with the circumstances carries with it the meaning
sought to be attached to it. Unexpressed intention is of no legal effect.
Words of ordinary use must be construed in their natural sense in view of
the circumstances of the case.”
38.
Based on the above statutory provisions and authorities, in my view
the agreement of 6 February 2008 must be construed in its plain meaning,
in that that 3rd respondent was only meant to convene a valid EGM, and not
take further steps to attend, vote and appoint a liquidator on behalf of the
petitioner.
28
Corporate Representative
39.
The respondents have also alleged that 3rd respondent is the
corporate representative of the petitioner.
40.
The petitioner however contended that 3rd respondent was not the
representative of the petitioner. Reference was made to sections 147(3)
and 147(5) of the Companies Act 1965 which relates to the appointment of
corporate representative to state as follows:
“(3) A corporation may by resolution of its directors or other governing body :
(a)
if it is a member of a company, authorize such person as it thinks fit
to act as its representative, either at a particular meeting or at all
meetings of the company or of any class of members; or
(b)
if it is a creditor (including a holder of debentures) of a company,
authorize such person as it thinks fit to act as its representative,
either at a particular meeting or at all meetings of any creditors of
the company,
29
and a person so authorized shall, in accordance with his authority and
until his authority is revoked by the corporation, be entitled to
exercise the same powers on behalf of the corporation as the
corporation could exercise if it were an individual member, creditor or
holder of debentures of the company.
(5)
A certificate under the seal of the corporation shall be prima facie
evidence of the appointment or of the revocation of the appointment
(as the case may be) of a representative pursuant to subsection (3).”
41.
From the evidence adduced by the parties, the court finds that the
petitioner passed no such resolution appointing 3rd respondent as its
corporate representative. The respondents have not adduced any
documents or evidence, such as a Certificate of Appointment of
Representative as envisaged by section 147(5), to show otherwise. Any
appointment of representative or proxy must be done properly and formally
in accordance with the necessary procedure. There was no such
appointment in the present circumstances. When questioned whether he
was the corporate representative of the petitioner for the purpose of signing
the agreement, it was clear that he had not been validly appointed as such
and merely assumed that he was entitled to act on behalf of petitioner
30
based on discussions with Shusuke, which in any event did not authorise
him to do so.
42.
Further, under cross examination, the 4th respondent informed the
court that to his knowledge, a corporate representative is able to sign
documents on behalf of DWS. However, the 4th respondent admitted that
he had not seen an actual document appointing the 4th respondent as a
corporate representative.
43.
In any event the statute itself makes it clear that a corporate
representative is only authorised to attend meetings on behalf of its
appointer. This authority does not extend to executing agreements on
behalf of the appointer. As such, any act performed or agreement executed
by the 3rd respondent in his capacity as “corporate representative”,
including the Share Transfer Agreement must necessarily be invalid.
Notice of the EGM
44.
The notice convening the EGM was in name addressed to the
petitioner but in reality, the proof of postage shows that the notice was
31
posted to the 3rd respondent and not the petitioner. This was admitted to by
the 2nd respondent during cross examination:
Notes of Proceedings dated 10.3.2011
Oommen Koshy
:
Yes, what it said here. So this notice of
meeting was sent to Kinoshita.
Ismail Johari (RW2) :
45.
Ya. Should be.
In cross examination, 3rd respondent also testified that the Notice
may have been forwarded to DWS’s old address and then says that it was
sent to the petitioner. He then goes on to say that he had verbally given
Shusuke notice of this meeting. It must be noted that he has never made
this averment in any affidavits. Based on the proof of postage of the proxy
form that was sent to 3rd respondent’s address in Kuala Lumpur, 3rd
respondent was clearly being untruthful.
32
The appointment of the liquidator is invalid
46.
By virtue of the procedural defects in the calling of the EGM on 30
August 2008, in particular (1) the issuance of the Notice of EGM to 3rd
respondent instead of the petitioner and (2) the 3rd respondent signing
off on the proxy form to appoint himself, the court finds that the EGM
is invalid. Consequently, the resolutions for voluntary winding up and
the appointment of 4th respondent as liquidator are also invalid.
47.
In the High Court case of Li-Foong Enterprise Sdn Bhd v. Mok
Yuen Lok & Anor [2006] 6 CLJ 266, the company was insolvent. The
plaintiff (claiming to be shareholder of the company, but in reality was not)
passed resolutions for the company to be voluntarily wound-up and for the
nomination of Dr. Ler as liquidator. On the same day the creditors
appointed the defendants as liquidators. The plaintiffs sought relief
declaration that Dr. Ler be the true liquidator of the company (they were
acting together to wield control of the company).
“(3) The said nomination of Dr Ler as liquidator of Empire Legacy would only be
valid if the EGM was attended by Empire Legacy's bona fide members or
33
shareholders - ie, Li Foong Industrial. There was no record to show that Li
Foong Industrial was represented at the said EGM. It was the plaintiff, Li Foong
Enterprise, holding itself out as a member or shareholder of Empire Legacy that
attended the EGM and nominated Dr Ler as liquidator. Such an appointment
was invalid.
...”
48.
As the petitioner was not notified about the meeting and 3rd
respondent is not the authorised representative of the petitioner, they did
not and could not have attended the meeting. Instead of the petitioner
executing the proxy form, it was 3rd respondent himself who signed the
proxy form appointing himself supposedly as the petitioner’s proxy.
Therefore as 3rd respondent’s appointment as proxy is invalid, the resulting
resolution for voluntary winding up and the appointment of the liquidator
must be invalid.
49.
In addition, the court accepts the learned counsel for the petitioner’s
submission that the EGM of 30 August 2008 and the resolutions passed
therein were therefore invalid as:
34
(i)
the 3rd respondent was not appointed as the proxy of the
petitioner for the purpose of that meeting and neither was 3rd
respondent a corporate representative of the petitioner. In fact,
by that time on 30 August 2008, 3rd respondent had retired from
the employment of the petitioner from the end of January 2008.
The petitioner therefore did not attend or vote at the EGM and
the resolution for voluntarily winding-up of DWS is illegal;
(ii)
The notice convening the EGM dated 9 August 2008 was not
sent to the petitioner and instead it was sent to 3rd respondent
who at that time was not even an officer of the petitioner.
50.
The only parties who attended the EGM on 30 August 2008 were the
2nd and 3rd respondents (holding himself out as proxy for the petitioner).
Since the court finds that the 3rd respondent was not holding a valid proxy,
therefore, a further procedural irregularity of this EGM was that the quorum
requirement for the meeting was not met. A quorum of two members is
required by Article 61 of the Articles of Association of DWS. There was no
valid meeting held on 30 August 2008 and the resolutions passed at this
supposed meeting are invalid.
35
Whether there has been a valid transfer of 15,000 shares from the
petitioner to the 2nd respondent
51.
The agreement for transfer of 15,000 shares to the 2nd respondent
was not executed by the petitioner who is the owner of the shares. In
cross-examination, the 3rd respondent agreed that the petitioner did not
sign the Share Transfer Agreement.
52.
There is no evidence that the petitioner has authorised the 3rd
respondent to sign the transfer form on its behalf. Even though following
the meeting on 5.10.2007, the petitioner had agreed to transfer 15,000 to
the local shareholders in the proportion of their existing shareholdings, the
2nd and 3rd respondents testified during cross-examination that there was
no evidence that the shares were offered to the other 2 shareholders.
53.
Thus, the court finds that that transfer of shares to the 2nd respondent
and the non payment of RM15,000.00 to the petitioner is disregard to the
interest of the petitioner and also tantamount to oppressive act by the 3rd
respondent. Thus, the amount shall be returned by the 2nd respondent to
the petitioner.
36
54.
With regard to the issue raised by the respondents that the issuance
of the 50,000 shares to them was done without a proper resolution
approving the same and without notice given to him as a shareholder, with
regrets the court finds that the 2nd respondent allegation is not supported by
evidence. Thus, it remains a bare allegation.
The 2nd respondent’s remuneration
55.
During the AGM of DWS held on 30 June 2009, the 2nd and 3rd
respondents passed a resolution that the 2nd respondent would receive
directors remuneration on RM5,000 per month for 11 years.
The 2nd
respondent explained that for the past 11 years he had not been receiving
remuneration as DWS was in financial straits, and that the 3rd respondent
promised to pay him when DWS recovered financially.
56.
On this issue, learned counsel for the 2nd and 3rd respondents
submitted that in respect of the director’s resolution in 2001 and 2002,
there is no evidence that fees were paid or taken by the 2 respondents.
37
57.
However, based on the Minutes of AGMs that were held on 30 June
2001 and 2002 respectively, it was resolved that the remuneration paid to
the directors for the year ended 31.12.2000 and 31.12.20001 amounted to
RM116,139.00.00 and RM115,053.00.00 respectively. Thus, it was argued
by the petitioner that this is contrary to the 2nd respondent’s assertion that
he had not been paid remuneration since 1997. During cross examination,
the 2nd respondent admitted that payments have been made to the
directors based on the said resolutions.
Oommen Koshy
So based on this, remuneration was paid to the directors in the year 2000
and was approved in 2001, based on this.
Ismail Johari (RW2)
Ya.
Oommen Koshy
Do you agree?
Ismail Johari (RW2)
Ya, should be.
38
58.
It is pertinent to note that even though the resolutions were passed,
the petitioner has not adduced any evidence whether the fees were actually
received by the 2nd respondent. Thus, the court finds that the petitioner has
not proved oppression of this conduct by the 2nd respondent. Therefore,
the issue of the refund of the remuneration does not arise.
RM450,000.00 advance to the 2nd respondent
59.
The petitioner contended that on 1.8.2008 DWS made payment of
RM450,000.00 to the 2nd respondent which is not payment of dividend as
alleged by the respondent. Instead, it is a loan given by DWS to the 2nd
respondent one month prior to liquidator without the necessary approval
under section 133 of the Act.
60.
Section 133 of the Act which prohibits a company from making a loan
to a director of a company subject to exceptions which are as follows :
“(2) Paragraph (1)(a) or (b) shall not authorize the making of any loan, or
the entering into any guarantee, or the provision of any security except—
39
with the prior approval of the company given at a general meeting at which
the purposes of the expenditure and the amount of the loan or the extent of
the guarantee or security, as the case may be, are disclosed; or
on condition that, if the approval of the company is not given as aforesaid at
or before the next following annual general meeting, the loan shall be
repaid or the liability under the guarantee or security shall be
discharged, as the case may be, within six months from the
conclusion of that meeting.”
61.
The court notes that the payment of RM450,000.00 was made by
directors resolution dated 30.7.2008 signed by the 2nd and 3rd respondents.
62.
In this regard the 2nd and 3rd respondents failed to tender any
evidence to dispute the petitioner’s contention that the loan was taken out 1
month prior to the voluntary winding up and no approval of DWS was given.
Thus, the irresistible conclusion that can be drawn is that the payment of
RM450,000.00 was made in contravention of section 133 of the Act and
thus, this conduct amounts to disregard to the interest of the shareholders.
Thus, this amount shall be refunded by the 2nd and 3rd respondents to the
1st respondent.
40
Setting-up Competing Business
63.
Next, the petitioner alleged that the 2nd and 3rd respondents have
failed to disclosed their interest in a company known as East Trade &
Technology Sdn Bhd which was registered on 11.9.2007 (hereinafter
referred to as “ETT”) when they caused DWS to enter into the Letter of
Guarantee and Management agreement with ETT of which they were
directors and shareholders and thus the agreement is void because it
contravenes section 131 of the Act. Section 131 of the Act provides :
“(1) Subject to this section every director of a company who is in any way,
whether directly or indirectly, interested in a contract or proposed contract
with the company shall, as soon as practicable after the relevant facts
have come to his knowledge, declare the nature of his interest at a
meeting of the directors of the company.
...
(5)
Every director of a company who holds any office or possesses any
property whereby whether directly or indirectly duties or interests might be
created in conflict with his duties or interests as director shall declare at a
meeting of the directors of the company the fact and the nature,
character and extent of the conflict.
…
41
64.
The 2nd respondent contended that there was no competing business
set up when the petitioner was interested in closing DWS by 31.12.2007
and wind up DWS. In this regard, the 2nd respondent submitted that the
formation of ETT and the appointment of the 2nd and the 3rd respondents
are within the knowledge of the petitioner. Therefore, it was argued that it
would be wrong for the petitioner to allege that there was no disclosure of
interest when in fact the formation was within the knowledge of the
petitioner.
65.
The 2nd and 3rd respondents are directors in ETT and the 3rd
respondent is also a majority shareholder. Under cross examination the 3rd
respondent admitted that he did not disclose his interest in ETT to the
shareholders of DWS prior to entering into the Management Agreement
dated 15 January 2008 and the Letter of Guarantee dated 1 January 2008,
nor were there any Board resolutions to that effect. Thus, the court accepts
the petitioner’s submission that pursuant to section 131(7)B, both these
contract are voidable for failure to comply with this provision.
66.
In this regard, the court finds that the 3rd respondent’s acts amounts
to disregard of the interest of DWS as well as its shareholders (Genisys
42
Integrated Engineer Pte Ltd v UEM Genisys Sdn Bhd & Another case
[2006] 8 CLJ 164 followed).
67.
Based on the evidence adduced, the petitioner has never agreed to
the issuance of the letter whether by the petitioner or by the 3rd respondent.
The 3rd respondent had signed this letter knowing full well of Shusuke’s
objections. This was what the 3rd respondent said in cross-examination :
Oommen Koshy
Ok, you gave him a letter and asked him to sign?
Kinoshita Masao (RW1)
No, I told him. This one has to be issued by your name.
Oommen Koshy
Yes, that’s right.
…
Kinoshita Masao (RW1)
But what did he say, uh, Mr. Shusuke Nata say, I don’t like to be in responsible
for it because many customer... getting angry so I don’t like do it he say oh... This
is my, my name.
…
Oommen Koshy
Agreed, yes, yeah in his name. Look you just said, you prepared a letter in his
name?
43
Kinoshita Masao (RW1)
Hmm.
Oommen Koshy
To sign, but he didn’t sign. Correct? You then signed this letter.
Kinoshita Masao (RW1)
This letter, yes.
Oommen Koshy
Because he didn’t sign it, you signed it, correct? Correct?
Kinoshita Masao (RW1)
Yes.
68.
The petitioner has already stated on affidavit that Shusuke is not
contactable and will not be able to attend court as a witness. In light of
that, the petitioner was not able to subpoena Shusuke to attend court as in
any event as a person residing in a foreign jurisdiction cannot be served a
writ of subpoena. This is stated in Order 38 rule 18(2) of the Rules of the
High Court 1980 which states:
‘ A writ of subpoena shall not be served on any person outside the
jurisdiction.’
44
69.
This principle has been expanded in the High Court decision of
Attorney General of Malaysia v Gapari Bin Kitingan [1990] 3 MLJ 307
where Haidar J (as he then was) held, inter alia, that:
“(2) A party cannot compel a witness in a foreign country to attend trial since
a writ of subpoena would not extend beyond the jurisdiction. Order 39 r 9 of
the Rules provide for depositions of witnesses who are beyond the
jurisdiction of the court to be receivable in evidence and therefore there is
absolutely no necessity for the applicant to show any attempt to procure the
foreign witnesses who are indisputably beyond the jurisdiction.”
70.
At page 308 of the judgment, Haidar J (as he then was) quoted a
passage from Mallal’s Supreme Court Practice (2nd Edition) at page 46
which reads:
“A party cannot compel a witness in a foreign country to attend trial since a
writ of subpoena ad testificandum does not extend beyond jurisdiction. To
obtain evidence of a witness who is unable or unwilling to attend the trial, the
Court may make an order for his examination abroad, if satisfied that the
application was made bona fide and with such promptitude so as not to
cause unreasonable delay and the evidence of the witness is relevant and
material to the issue and could not be obtained otherwise.”
45
71.
Based on the reasons above, the 2nd and 3rd respondents have
breached their fiduciary duty to DWS and have oppressed the petitioner as
a majority shareholder by entering into these 2 agreements on behalf of
DWS with another company in which they are directors and shareholders
without any disclosure of their interest either at the Board or shareholder
level. Thus, the said agreements are void and all payments made pursuant
thereto, are invalid and should be returned to DWS.
72.
The payments are as follows :
i)
Payment of RM350,000.00 was made to ETT for
assuming all responsibilities and liabilities for the
performance of DWS’s obligations on existing and
outstanding contracts;
ii)
Further payment of RM151,086.00 paid out on 10
December 2007 for guarantee work for the period from
January to December 2008 for Taiyo Yuden (Philippines)
and Taiyo Yuden (Sarawak).
As highlighted in the 5th
Receivers
and
(R&Ms”)
customers
are
Managers’
already included
46
in
Report,
the
both
Letter
of
Guarantee. Upon the R&Ms request for an explanation,
the 2nd and 3rd respondents explained that the payments
of RM350,000.00 and RM151,086.00 relate to 2 two
different projects of Taiyo Yuden. The R&Ms note in their
Report that the Letter of Guarantee only makes reference
to projects of Taiyo Yuden without any specifics.
(iii)
ETT agreed to provide management and accounting
services to ETT for a monthly consideration of RM15,000
which was to continue for 6 months on an automatic
renewal basis. On 11 February 2008, DWS made
payment of RM90,000 to ETT pursuant to this agreement;
iv)
On 10 June 2008, DWS had made a further payment of
RM90,000 for the period of July until December 2008. The
R&Ms report that although DWS was placed in voluntary
liquidation on 30 August 2008, both the 2nd and 3rd
respondents had confirmed that the agreement was not
terminated and the sum of RM60,000 paid to ETT was not
refunded to DWS.
47
Various claims to the 3rd respondent Amounting to RM145,788.98
73.
Based on the R&Ms Reports, various claims for telephone, travelling,
hotel accommodation and medical expenses totalling RM RM145,788.98
were paid out to the 3rd respondent. However, the petitioner itself in its
submission agreed that the supporting documents that were forwarded
could not confirm or explain whether the payments made were rightful and
proper, e.g. provided for in the employment contracts. Thus, the petitioner
is not able to prove that the claim by the 3rd respondent is unlawful.
Monies that were paid out to Messrs Benjamin Ng & Partners out of
DW’s funds
74.
The petitioner’s contention is that the 2nd and 3rd respondents’
consent to paying by their own admission unreasonably high advances for
legal work that had not been performed without taking any steps to retrieve
the sum is in breach of their fiduciary duties as trustees of DWS’s assets.
48
75.
On this issue, the court notes that the invoices from Messrs
Benjamin Ng & Partners, the details of the work done had not been
particularised.
76.
In relation to this, the 2nd respondent explained that these payments
were, in effect deposits for legal works and also deposit for works to be
done by Messrs Benjamin.
The 2nd respondent admitted that DWS’s
money was used to pay Messrs Benjamin some of which for work that have
not been performed. Thus, the failure by the 2nd and 3rd respondents to
retrieve some of the money paid to Messrs Benjamin, for work not done
would be to my mind in breach of their fiduciary duty and amounts to
oppression.
77.
However, the court is not able to determine how much money is to be
retrieving by the 2nd and 3rd respondents from Messrs Benjamin Ng as no
evidence was submitted by the petitioner as the actual legal fees that ought
to be paid.
Whether the 2nd and 3rd respondent acted in accordance with the law
after the voluntary liquidation on 30 August 2008
49
78.
After the alleged voluntary winding up of DWS on 30 August 2008,
the petitioner had filed a 218 Petition on 7 October 2008. The petitioner
contended that the 2nd respondent affirmed multiple affidavits in the 218
Petition alleging that he was authorised to affirm the affidavits on behalf of
DWS and he made statements that DWS still had contractual obligations to
fulfill and spoke of the great prejudice the 218 Petition would bring to DWS.
The petitioner argued that these statements were simply not true when the
2nd respondent himself admitted as much in cross-examination when he
said “it was not right” for him to have said that.
79.
Based on section 256 and 258 of the Company’s Act, 1965, the
petitioner also argued that on the passing of a resolution for the winding up
of DWS, all the powers of the directors cease. However, when litigation
was first initiated by the petitioner (who at that time, was not aware of the
alleged voluntary winding-up) in the form of the section 218 Petition, the 2nd
respondent was still affirming affidavits on behalf of DWS. He did not at any
time inform the court that DWS was already in voluntary liquidation. This
was admitted by the 2nd respondent during cross examination:
50
Oommen Koshy
In these four affidavits that you filed in court, you did not disclose that the
company was wound up on 30th August 2008, do you agree?
Ismail Johari
Not in writing...
Oommen Koshy
No, in these.. No, my question is, in these affidavits, did you disclose to
the court?
Ismail Johari
I didn't.
80.
However in the 218 Petition proceedings, the 2nd respondent affirmed
court affidavits dated 5 December 2008, 19.1.2009 and two affidavits dated
18.3.2009 stating that he was authorized to affirm the affidavit on behalf of
DWS when it was supposedly wound up. He averred in relation to the risk
of prejudice DWS faced at a court winding up as it had to fulfill its
contractual obligations, and that DWS was being managed profitably and
benefiting the shareholders.
51
81.
In this regard, the court finds that there is no evidence that the
directors have authority to affirm the affidavits on behalf of DWS since the
voluntary liquidator has purportedly taken over the powers of the directors
upon commencement of the alleged liquidation. This was what the 2nd
respondent said in cross-examination :
Oommen Koshy
Did anybody authorise you to affirm these affidavits on behalf of the
company?
Ismail Johari (RW2)
No.
Oommen Koshy
No? Nobody authorised you. Now, En Ismail, in all these affidavits that
you filed, you agree you never disclosed that there was a voluntary
winding up on 30th August '08, do you agree?
Ismail Johari (RW2)
Ya.]
…
Page 28, Notes of Proceedings 10.3.2011
Ismail Johari (RW2)
52
Yes. You had to inform them, isn't it?
Oommen Koshy
About this 218 Petition?
Ismail Johari (RW2)
Yes.
82.
The court also finds that under cross examination, the 2nd respondent
admitted that after the voluntary winding up on 30 August 2008 he no
longer had powers as a director to affirm affidavits on behalf of DWS and
that no one had authorised him to affirm the affidavits. He goes on to admit
that he did not disclose to the court about the voluntary winding up of DWS
and that the averments in his affidavit filed in the 218 Proceedings alluding
to the fact that DWS was a going concern was not correct as DWS was
already wound up by 30 August 2008.
83.
The 3rd respondent in cross examination also admitted that
statements such as company having contractual obligations and going
concern, could not be true since DWS in voluntary winding up.
53
84.
Based on the above reasons, in my judgment, the 2nd and 3rd
respondents have not acted in accordance with the law and their conducts
amount to disregard of the DWS’s interest.
Payment of RM144,000.00 as interim distribution to the 2nd respondent
85.
The R&Ms 1st Report shows that the 2nd respondent had received an
amount of RM144,000.00 as the 1st interim distribution to contributories.
86.
Since earlier, the court has made a finding about the alleged
voluntary wind-up of DWS is invalid, therefore the sum of RM144,000.00 is
invalid and this payment must be returned to DWS.
Whether the liquidator has acted in a neutral manner as required by
law
87.
Earlier, the court is of the view that the liquidator’s appointment was
null and void. However, 268 and 232(8) of the Act states that the Acts of a
54
liquidator shall be valid notwithstanding any defects that may afterwards be
discovered in his appointment.
88.
The powers of liquidator was discussed in the case of Re Equity
Funds of Australia (in Liq) Supreme Court of New South Wales 2
ACLR 238 held as follows :
“in my view, the test to be applied under s 279 is similar to that applying to
the exercise of a discretion which is committed by statute to some particular
official. The principles applied by the court in such cases are reasonably well
settled. The court will recognize that the discretion has been vested by the
statute in the liquidator and will not interfere unless it is shown that he did not
address himself to the correct question or that, he made errors of law or that
he failed to take into account relevant matters or that he took into account
irrelevant matters, to which may be added that if his decision in the
circumstances appears such that no reasonable man could arrive at it, the
court will interfere (see generally Avon Downs Pty Ltd v FC of T (1949) 78
CLR 353; Re Mineral Securities Ltd [1973] 2 NSWLR 207; Leon v
Yorkomatic [1966] 1 A11 ER; [1996] 1 WLR 145).”
89.
In the case of Abric Project Management Sdn Bhd v Palmshine
Palza Sdn Bhd & Anor [2007] 3 MLJ 571 the court referred to the case of
55
Chin Ah Keow@Chin Lai Sitt v Anggun Pintas Sdn Bhd & 3 Ors [2005]
1 LNS 92, where it was held that :
“In this regard, the case of Chin Ah Keow @ Chin Lai Sitt v Anggun Pintas
Sdn Bhd & 3 Ors [2005] 1 LNS 92 appears to be relevant to the present
facts. In that case, the plaintiff had also sought to challenge the decision of
the liquidators (second and third defendants) appointed over the first
defendant in accepting a tender submitted by the fourth defendant pursuant
to s 279 of the Companies Act 1965 In arriving at its decision as to the test to
be met, the court referred to the following cases with approval:
(a) In Re Edennote Ltd Tottenham Hotspurs PLC & Ors v Ryman and Anor 1
[1995] 2 BCLC 248 where it was held that the court could only interfere
with the exercise of a liquidator's decision to sell the assets of an
insolvent company in very exceptional circumstances and would not do
so unless it could be shown that the liquidator had acted utterly
unreasonably or, though acting in good faith took into account
considerations which he ought not to have taken into account or
failed to take into account considerations which he ought to have
taken into account;
(b)
In Re Equity Funds of Australia (in Liq) [1976-1977] 2 ACLR 238, where
his Lordship Bowen CJ applied a similar test when he held:
56
in my view, the test to be applied under s 279 is similar to that applying to
the exercise of discretion which is committed by statute to some particular
official. The principles applied by the court in such cases are reasonably
well settled. The court will recognise that discretion has been vested by the
statute in the liquidator and will not interfere unless it is shown that he did
not address himself to the correct question or that he made errors of law or
that he failed to take into account relevant matters or that he took into
account irrelevant matters, to which may be added that if his decision in the
circumstances appears such that no reasonable man could arrive at it, the
court will interfere…”
90.
I must stress that in relation to section 181 petition, there is nothing in
its terms to say that only members, or its directors, or those in control of the
company may only be made respondents to the petition.
In Re Little
OIympian Each-Ways Ltd [1994] 2 BCLC 420 it was held by Lindsay J
that :
“In an appropriate case, relief can be sought against a non-member, or
against a person not involved in the conduct complained of (at least if that
person could be affected by the relief sought), and in appropriate cases a
person could be made a Respondent eventhough no relief was sought against
that person. However, the Court could strike out a Petition, even against a
person who had been involved in the allegedly unfairly prejudicial conduct, if
no remedy was sought against that person. There may be circumstances
where the prospects of an order being made were perfectly hopeless and
57
hence where it would be an abusive use of the process to require the
Respondent to remain as such or to be added as such.”
91.
The court will now deal with the grounds submitted by the petitioner
as the oppressive conduct by the 4th respondent.
92.
The petitioner’s in its petition claims that the 4th respondent has acted
in the following oppressive manner :
(i)
The 4th Respondent has not demonstrated that he provided
authority to the 2nd Respondent to affirm affidavits purportedly
on behalf of DWS in the Just and Equitable Petition.
(ii)
The 4th Respondent, purportedly as liquidator of DWS, did not
explain to the court in the Just and Equitable Petition, either
through the affirmation of affidavits or through solicitors acting
for DWS, of the existence of the alleged voluntary winding up.
58
(iii)
The 4th Respondent, through the 2nd Respondent’s affidavits,
misrepresented to the court in the Just and Equitable Petition
that DWS was still a going concern.
(iv)
The 4th Respondent had refused to disclose any information in
relation to the alleged voluntary winding up to the Petitioner
when the Petitioner first requested for such information.
(v)
The 4th Respondent has repeatedly refused to acknowledge
and recognise the petitioner’s rights as majority shareholder. In
all circumstances of this case, the 4th Respondent had failed to
act in an impartial manner and has aligned himself with the 2nd
and 3rd Respondent. As set out in this Petition, the 4th
Respondent has chosen to accept all allegations put forward by
the 2nd and 3rd Respondent and the 4th Respondent has
rejected the facts advanced by the Petitioner.
(vi)
The 4th Respondent has also descended into the arena of
litigation. The 4th Respondent has caused DWS to file court
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applications, affirmed affidavits on behalf of DWS and has
opposed the Petitioner’s court proceedings.
(vii) The 4th Respondent has caused the wrongful depletion of
assets of DWS and the Petitioner repeats paragraph 63 and its
sub-paragraphs of this Petition.
(viii) The 4th Respondent has failed to investigate the affairs of DWS,
especially the events prior to the alleged voluntary winding up
of DWS and where there have been missing monies as set out
in the Petition.
(ix)
The 4th Respondent has failed to take into his possession all the
books and records of DWS. The 4th Respondent was only able
to hand over to the Receivers and Managers DWS’s books and
records for the period from 30.8.2008 onwards.
(x)
The 4th Respondent has acted in breach of his statutory duties
inter alia in failing to summon a general meeting of DWS
pursuant to section 271 of the Companies Act 1965.
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(xi)
The 4th Respondent has acted in breach of his fiduciary duties
to DWS and has acted against the interests of the Petitioner.
Whether the payments of the director’s solicitors fees from the DWS’s
fund
93.
The petitioner alleged that there had been payment of RM307,500.00
out of DWS funds authorised by the 4th respondent to Messrs Benjamin Ng
& Partners for representing the 2nd and 3rd respondents who are directors of
DWS.
94.
Learned Counsel for the petitioner referred to the case of Dato’ Tan
Toh Hua & Ors v Tan Toh Hong & Ors [2001] MLJ 369 where the Court
of Appeal made it clear that directors could not use company monies to
fund shareholder’s disputes as the company is only a nominal party and the
dispute is purely between shareholders. The Court held that it was a
misfeasance to do so.
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95.
On this issue, the court cannot agree with the petitioner’s contention.
The court finds that the 4th respondent, at all times, acted in good faith
based on the following reasons :
(i)
Payment to Benjamin Ng was made after the 4th respondent
consulted peers from reputable accounting firms, namely
KPMG and Pricewaterhouse Coopers (paragraph 6.2(c),
Enclosure 132). Further, payments in the sum of RM450,000
had previously been made to Benjamin Ng prior to the 4th
respondent having taken office in 5.3.2009. No suggestions
were made to the 4th respondent during cross-examination that
these payments ought to have raised suspicion. The fact of the
matter is that Benjamin Ng had been instructed as DWS’s
lawyer prior to the 4th respondent having been appointed as
liquidator;
(ii)
The 4th respondent had, at all times, consulted his lawyers for
advice pertaining to the section 218 petition and the petition
herein;
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(iii)
The particulars of what to file into court or what to include in
affidavits was not within the ambit or knowledge of an
experienced liquidator and he relied fully on the advice of his
lawyer for this purpose. The 4th respondent admitted in crossexamination that he was not experienced in legal matters and
that there was nothing to suggest that he was being improperly
advised;
(iv)
When the 4th respondent became aware of the complaints
concerning Benjamin Ng’s conduct, he changed lawyers. In
this regard it is pertinent to note that affidavits filed without the
advice of Benjamin Ng reflect a much more neutral stand point
and his son partisan involvement with DWS (para 16.8 of
Enclosure 120).
This was recognised by counsel for the
petitioner during trial.
Payment of the liquidator’s legal fee
96.
The petitioner contended that Messrs Paul Cheah & Associates, the
former solicitors of the 4th respondent, had issued an invoice dated
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5.8.2009 to the 4th respondent for the sum of RM26,650.00 allegedly as
professional fees to act for the 4th respondent. Such payments consist of
alleged legal fees incurred as a result of the 4th respondent wrongly taking
an active part in the litigation proceedings, through the filing of court
applications, affirming affidavits and instructing solicitors to act for DWS.
97.
On this issue, the court accepts the submission of learned counsel for
the 4th respondent that such payment is lawful as section 236(2) of the Act,
provides for the liquidator to bring or defend legal proceedings for and on
behalf of the company.
The 4th respondent has not demonstrated that he provided authority
to the 2nd respondent to affirm affidavits purported on behalf of DWS
in the Just and Equitable Petition (and para 64.5 of the Amended
Petition).
98.
The
petitioner
contended
that
the
4th
respondent
has
not
demonstrated that he (the 4th respondent) provided authority to the 2nd
respondent to affirm affidavits purported to be on behalf of DWS in the Just
and Equitable Petition.
64
99.
On this issue, the 2nd respondent and the 3rd respondent in cross-
examination testified that the 2nd respondent affidavit in the Just and
Equitable Petition was prepared by Benjamin Ng.
In this regard, it is
incumbent upon the 2nd respondent to obtain authority from the 4th
respondent before he affirmed the affidavit. The 2nd respondent had
confirmed during cross-examination that he affirmed affidavits without the
authority of the 4th respondent.
Thus, the 4th respondent is not to be
blamed for the failure by the 2nd respondent to obtain such authority from
the 4th respondent. In any event, in my view, such act would not amount to
oppression.
The 4th Respondent, through the 2nd Respondent’s affidavits,
misrepresented to the court in the Just and Equitable Petition that
DWS was still a going concern.
100. The petitioner also contended that the 4th respondent, through the 2nd
respondent’s affidavits, misrepresented to the court in the Just and
Equitable Petition that DWS was still a going concern.
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101. Similarly, the affidavit was affirmed by the 2nd respondent. The 4th
respondent is not to be blamed for the act of the 2nd respondent.
Failure to call for a shareholder’s meeting
102. Next, the petitioner alleged that the 4th respondent’s failure to call for
a shareholder’s meeting amounts to oppression.
103. The 4th respondent has explained that under the law he was to call for
an annual general meeting within 3 months from 30.8.2009 but was
subsequently suspended as liquidator by virtue of the order of the Court of
Appeal dated 17.9.2009 before he could do so.
The 4th Respondent, purportedly as liquidator of DWS, did not explain
to the court in the Just and Equitable Petition, either through the
affirmation of affidavits or through solicitors acting for DWS, of the
existence of the alleged voluntary winding up
104. On this issue, the 4th respondent explained in cross-examination that
he was guided by the advice of his then lawyers, Benjamin Ng or Venu Nair
66
in the preparation of the Just and Equitable Petition.
I accept the 4th
respondent’s argument that the petitioner should have called Benjamin Ng
or Venu Nair to rebut the 4th respondent on this allegation. Thus, there is
no merit in the petitioner’s argument that this act of the 4th respondent
amounts to oppression.
The 4th Respondent had refused to disclose any information in
relation to the alleged voluntary winding up to the Petitioner when the
Petitioner first requested for such information
105. The petitioner submitted that the 4th Respondent has repeatedly
refused to acknowledge and recognize the petitioner’s rights as majority
shareholder. It was also alleged by the petitioner that the 4th Respondent
had failed to act in an impartial manner and has aligned himself with the 2nd
and 3rd Respondent.
106. The burden lies on the petitioner to prove its case of oppression as
against the 4th respondent (s. 101, 102 and 103 of the Evidence Act, 1950).
67
107. In this regard, the court accepts the submission of the 4 th respondent
counsel that the 4th respondent has stated that he acted on advice. There
was no challenge that he did not. Nor was it put to the 4th respondent that
he had intentionally disregarded advice or acted in a manner inconsistent
with the advice given.
108. If the petitioner wished to show that Benjamin Ng or his law firm were
acting other than as responsible solicitors, then that is for the petitioner to
prove. He who asserts must prove (s. 101-103 of the Evidence Act, 1950).
The failure on the part of the petitioner to call Benjamin Ng as a witness is
basis for drawing an inference against the petitioner that had Benjamin Ng
been called, his evidence would have shown that he had acted reasonably
as a solicitor and the 4th respondent had relied on such advice.
109. In any event, the failure to appear neutral in previous affidavits was
explained by the 4th respondent during cross-examination by the
petitioner’s counsel. In essence, he was guided by the advice of his then
lawyers. The petitioner did not call Benjamin Ng or Venu Nair to discredit
or disprove the 4th respondent on this.
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110. The court agrees with the 4th respondent submission that the 4th
respondent testified that the court would have been put on notice that DWS
was in liquidation due to the fact that he affirmed, and could only affirm,
affidavits in his capacity as liquidator. Further, the court finds that there is
no basis to conclude that the 4th respondent misrepresented to the court or
in any event that such misrepresentation was oppressive to the petitioner.
Conclusion
111. The question now is what is the most appropriate remedy in the
circumstances of this case. All the acts as described in all the complaints
(except complaint) against the 2nd and 3rd respondents, taken jointly or
severally clearly indicate that the affairs of DWS was conducted in a
manner which was oppressive to the petitioner and wholly disregarded its
interest as shareholder of DWS and in view that the voluntary winding up is
not valid, the court is of the view that in the circumstances of this case, the
appropriate remedy to be made is a winding up order.
It is just and
equitable that the 1st respondent be wound up and such an order is in the
interest of the 1st respondent as a whole. The court is satisfied that there is
69
no commercial reason to keep the 1st respondent alive as a company. In
addition, the court allows the following relief :
(i)
A declaration that the resolution resolving that the 1st respondent
be voluntary wound-up is void, invalid and of no effect.
Accordingly, all documents relating thereto including but
not
limited to the Notice of Resolution (Form 11), Form 72, is void,
invalid and of no effect;
(ii)
A declaration that the appointment of the 4th respondent as
liquidator is therefore void, invalid and of no effect and by virtue
of section 26 of the Act, any act carried out pursuant to the
appointment of the 4th respondent is valid;
(iii)
A declaration that the Share Transfer Agreement dated 15
January 2011 is invalid;
(iv)
A declaration that the Letter of Guarantee and the Management
Agreement is void pursuant to s.131 (7B) of the Act.
(v)
that Mr Ooi Woon Chen, Liquidator License No 1891/93/10 J/PH,
and Mr Ong Hock An, Liquidator License No 2309/08/10 J/PH
70
(“the Liquidators”), be appointed as Liquidators of the 1st
respondent;
(vi)
that payment of the Liquidators’ agreed professional fees up to
RM8000 a month and actual service tax and disbursements
incurred be approved, and that the Liquidators be allowed to
draw from the 1st respondent the approved payment of their
professional fees and disbursements monthly; and
(vii) the 2nd and 3rd respondents refund the monies as ordered above.
Costs
112. Lastly, I order that all costs incurred by the petitioner as against the
1st, 2nd and 3rd respondents in this proceeding be borne by DWS.
(Hanipah binti Farikullah)
Judicial Commissioner
Dagang 5
KUALA LUMPUR
Dated : 24.5.2011
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Solicitors for the petitioner
Ms. Deepa Nambiar
Messrs Skrine
Unit No. 50-8-1
Wisma UOA Damansara
50 Jalan Dungun
Damansara Heights
50490 Kuala Lumpur
Solicitors for the 1st respondent
Ms. Himahlini Ramalingam
Messrs Lee Hishammuddin Allen & Gledhill
Level 16
Menara Tokio Marine Life
No. 189, Jalan Tun Razak
50400 Kuala Lumpur
Solicitors for the 2nd & 3rd respondents
Mr. Tang Kim Choong together with Mr. Mohammad Shafiee
Messrs K.C. Tang & Co.
No. 16-1, Jalan 6/21D
Medan Idaman, Batu 5
Jalan Gombak
53000 Kuala Lumpur
Solicitors for the 4th respondent
Mr. Johnston Yap
Messrs Yap & Company
No. 33-1, Jalan Puteri 2/3
Bandar Puchong
Selangor
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